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Pacific Capital Bancorp (PCB) officials vigorously denied this afternoon a loud rumor that the bank is due to be shut down by the federal government. PCB is the parent company of Santa Barbara Bank & Trust, and the two organizations share corporate offices on Anacapa Street in Santa Barbara.

“That’s preposterous,” said PCB President George Leis in response to the rumor, which has been circulating all week.

“Absolutely crazy,” said Fred Clough, the bank’s general counsel.

Debbie Whiteley, the bank’s public relations officer, added that the feds “don’t take over strongly capitalized banks.”

The news, announced earlier this week, that PCB is suspending dividend payments on the federal bailout funds it received via the Troubled Asset Relief Program, as well as dividend and interest payments on other preferred and common stock, is presumed to have given rise to the rumor. As 4 p.m. Friday approached - the hour when federal officials traditionally arrive, unannounced, to shut down banks if they are going to do so - the three officials met with this reporter at the banks’ headquarters.

The reason his bank is suspending dividends, Leis explained, is in order to “fortress the balance sheet” against potential vicissitudes, given the uncertain economic climate. “It’s to bolster the capital ratios, which exceed the criteria for a bank being well capitalized,” said Clough. The bank’s tier one capital ratios at the end of the first quarter were “very strong compared to those of our peers,” Whiteley added.

“We are a safe and sound bank,” Leis emphasized. “We’re well capitalized and have plenty of liquidity. We’re taking prudent steps to build capital because we’re in the middle of a tough economy - the worst recession that this company, certainly, has had to weather. The larger our surplus account, the better our ability to weather a storm.”

Paul Wellman

Santa Barbara Bank & Trust ATMs on Anacapa St.

Clough said PCB has the same agreement with the Department of Treasury as all other banks who received bailout funds. The Treasury now owns $180.6-million worth of PCB preferred shares. Clough said the agreement allows deferred dividend payment. “We are not violating any agreement,” said Clough. “We have a great relationship with the regulators,” said Leis, specifically the Glendale office of the Office of the Comptroller of the Currency, “and talk to them regularly. They have asked us to continue accruing capital.”

The bank officials said they wanted to remind the public that interest-bearing accounts are all insured by the Federal Deposit Insurance Corporation for up to $250,000 - and that the bank’s non-interest-bearing checking accounts are insured 100 percent regardless of the amount in them. (David Barr, a spokesman for the FDIC, said most banks opt-in to the unlimited deposit insurance program for checking accounts—typically payroll accounts—that pay 0.5 percent interest or less. Most checking accounts pay more interest, but don’t contain more than $250,000.)
What ordinarily happens when banks are taken over is that the federal government first sells the bank to another bank, goes in and closes it on Friday afternoon, and reopens it Monday morning under new management.

There was no run on the State Street branch of Santa Barbara Bank & Trust on Friday afternoon, according to one bank customer who did go in near 4 p.m. to withdraw the funds from his account in response to the rumors. He said bank employees were joking nervously among themselves, however, about the possibility of the shutdown, which never came.

This story has been amended since its first posting to clarify facts about insurance on checking accounts.

Reporting on rumors? Is that good journalism? Fact, the feds didn't close the bank! Fact, you have no knowledge from the feds that they are even planning to do that. Fact, the Independent has had some sloppy journalistic style lately.Fact, keep it up and you'll be closed down. Think of the damage you can do reporting fact and having people make a run on the bank for no reason. Shame!

I heard the rumor yesterday morning from a source he considered reliable. I now suspect someone overheard the name "pacific" and confused it with metropacific bank of irvine which was closed at 4:00 pm yesterday.

The economy is enough to give any bank nightnmares, but the stockholders here must be in therapy. Sound management has been conspicuous by its absence all along; I wonder if the money they saved by delaying the dividends is paying for the new paint job downtown? Great timing folks.

I do not know if the bank is being seized, but neither does the bank's management. The FDIC does not notify a bank's management that they are going to seize a bank. Management finds out when the FDIC team arrives at a bank to take it over, typically on a Friday night. This bank or any bank has no clue if they are being taken over. (Note, I am not saying that SBBT is being taken over, just that this bank's management, like any bank, does NOT know in advance of any FDIC action.)

They will deny it until the very end if it does happen, that is the way it goes down every time. You really cannot trust anybody. Their service has been kind of crappy and no real reason to have your money there over other banks. IÂ'll be taking my money out next week, there is no reason to leave money there except naivete.

"Serving YOU by serving ourselves first**" (**because if the bank goes down you're all screwed - so suck it)

I tried to get a small loan of working capital for my business just over a year ago from SBBT. Despite having all the necessary (qualifying) paperwork and a lifetime of successful experience with the bank, I was denied. I talked to many other people, even if they were approved, they just couldn't get cash from the bank. A few months later they remodeled all of their branch lobbies, but only after PCB got $180 mill. from the tax payers (us). See slogan above.